With soaring interest rates, private investors in the UK are turning to government bonds for better yields, making platforms like Hargreaves Lansdown, Interactive Investor, and AJ Bell report significant increases in gilt purchases.
Private investors in the UK are increasingly buying government bonds, or gilts, motivated by attractive yields amid high-interest rates maintained by the Bank of England. Investment platforms such as Hargreaves Lansdown, Interactive Investor, and AJ Bell have all reported a notable increase in gilt purchases in the first quarter of 2024, compared to the same period in the previous year.
The primary focus for these investors has been on short-dated gilts with low coupons, which provide a tax-efficient alternative to cash holdings. This preference is due to the favorable tax treatment of gilts, where income from fixed interest payments is subject to income tax, but capital gains are not taxed at the point of maturity or sale. Popular investments include gilts that are set to mature in 2025 and 2026, featuring varying annual interest rates.
The rise in the yield on two-year gilts during this year has bolstered investor confidence, underpinned by a market expectation of limited interest rate cuts by the Bank of England. Analysts anticipate that this trend towards higher bond yields will persist, continuing to draw investors to different segments of the fixed-income market. Bonds, and gilts in particular, are expected to be a key component of investment strategies over the next decade, offering competitive returns when compared to other European government bonds.
